MNI POLICY: Weaker GDP Clouds BOJ View on Capex Sustainability

By Hiroshi Inoue

     TOKYO (MNI) - Weaker-than-expected capital investment in Q4 is increasing

Bank of Japan concerns over the sustainability of capital investment, a main

pillar of a virtuous cycle needed for an economic recovery.

     The BOJ had expected machinery investment to decelerate as overseas

economies slowed, but the heightened uncertainties surrounding coronavirus will

increase downward pressure on capex, BOJ officials worry.

     The yen's rise to a JPY102 level is increasing the BOJ's concerns,

increasing pressure on it to consider action to curb the yen's rise.

     The BOJ had expected the economy to contract in Q4 following the sales tax

hike and a string of natural disasters. However, it must now assess whether the

slowdown is cyclical and likely to impact the virtuous cycle as any recovery

expected a month or so ago has now been forgotten as the virus effects weight.

     The BOJ board will likely lower its economic assessment at the March 18-19

policy-setting meeting in the wake of the GDP data and other weak economic data.

Policymakers will also consider their baseline scenario that the economy is

expected to return to a moderate recovery path, albeit with downside risks to

economic activity and prices.

--MNI Tokyo Bureau; tel: +81 90-2175-0040; email: hiroshi.inoue@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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